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April 2015

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Taft-Hartley’s

Tipping Point ACA Taxation

COMPLICATES Self-Insurance Mission for Unions

Public Entity Program Offering Exclusive Access for Individual Public Entity Risks That Prefer to Self-Insure Their Exposures.

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Editorial Staff PUBLISHING DIRECTOR Erica Massey SENIOR EDITOR Gretchen Grote CONTRIBUTING EDITOR Mike Ferguson

Taft-Hartley’s

Tipping Point ACA Taxation

Remembering Dick Goff

14

ART Gallery One Way to Stay Out of Trouble with the DOL

16

Considerations When Evaluating Vendor Solutions for Electronic Adoption and Compliance

Self-Insurance Mission for Unions

Bruce Shutan

Volume 78

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COMPLICATES

DIRECTOR OF OPERATIONS Justin Miller

April 2015

DIRECTOR OF ADVERTISING Shane Byars EDITORIAL ADVISORS Bruce Shutan Karrie Hyatt

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PPACA, HIPAA and Federal Health Benefit Mandates The Impact of Staffing Firm Employees and Contingent Workers on the Employer Shared Responsibility Requirement Under IRC 4980H

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SIEF Golf Tournament at Camelback Country Club in Scottsdale, Arizona

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Streamlining the TPA Licensing Process

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SIIA Endeavors Workers’ Compensation Understanding Taft-Hartley in The Big Easy Health Plans

James A. Kinder, CEO/Chairman Erica M. Massey, President

Karrie Hyatt

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Lynne Bolduc, Esq. Secretary

April 2015 | The Self-Insurer

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Taft-Hartley’s

Tipping Point ACA Taxation

COMPLICATES Self-Insurance Mission for Unions

W

hile self-insured employers have struggled to comply with the Affordable Care Act (ACA), selfinsured Taft-Hartley plans also face an even steeper uphill climb – with added costs that could alter the course of historically generous benefits and collective bargaining agreements.

Ed Smith, president and CEO of ULLICO, describes the overall market state as “very challenging,” noting a declining economic impact on the nation’s most-unionized industries since the Great Recession and medical inflation outpacing wage inflation for more than 30 years.

Written by Bruce Shutan 4

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The ACA has imposed a transitional-rate insurance fee, also known as a “belly button tax,” which essentially amounts to a reinsurance fee on carriers that no longer are allowed to charge higher premiums to sicker plan participants. Last year’s $63 charge for each covered life fell to $44 for 2015 and will drop to $27 in 2016. Plan that are both self-insured and self-administered are exempt. It is estimated that 20% of Taft-Hartley plans fit that definition.

TAFT-HARTLEY | FEATURE Smith, whose insurance and financial services holding company serves union members, says there’s no way for these jointly administered health plans to recoup that money and fears the Taft-Hartley market will shrink over time unless there’s regulatory relief.

“They simply have to write a check out of their self-insured plans to cover this tax,” he notes. “It’s very punitive because that money comes either out of the worker’s pocket or the company’s pocket, and they’re struggling to keep their businesses alive, and the worker is struggling to keep his house and car, etc.”

Unfairly Penalized?

Randy DeFrehn, executive director of the nonprofit National Coordinating Committee for Multiemployer Plans, says organized labor’s main gripe with the ACA is that their health plans were already doing what the landmark legislation sought from small employers, which was to help them obtain affordable, high-quality coverage by pooling their purchasing power and eliminating pre-existing conditions.

© Self-Insurers’ Publishing Corp. All rights reserved.

Industry insiders agree that the result, even if it’s an unintended consequence of health care reform, is that the ACA has seriously hampered the ability of self-insured Taft-Hartley plans to maintain the level of operational efficiency that they’ve long enjoyed.

“Our belly button tax was about $933,000 in 2015,” reports Barry McAnarney, executive director of the Massachusetts Labor Benefit Fund (MLBF). “That’s less money we have to pay on our plan... We think it was commendable that more than 11 million people have signed up [for health insurance coverage through Obamacare], “but we think that by

charging us the belly button tax for something we were providing that we’re the ones being penalized.”

Self-funded Taft-Hartley plans cover between 10 million and 11 million of the nation’s roughly 15 million rank-and-file union members, as well as another 10 million to 14 million dependents, estimates Michael Jordan, president in the labor and strategic accounts division of MagnaCare, which manages and administers claims in the self-insured Taft-Hartley market. He says that’s a far cry from about 30 years ago when there were about 18 million unionized workers representing 20% of the workforce and the manufacturing sector was much stronger.

The Taft-Hartley model, though overwhelmingly built around selfinsurance, also features a mix of fully and self-insured plans, and single and multiemployer plans, depending on the market. In the steel industry, for example, DeFrehn points to longstanding relationships that have been maintained with Blue Cross and Blue Shield plans, whereas in certain parts of Pennsylvania and New York plans might self-insure outpatient care, but turn over inpatient care to a Blues plan or other major carrier that can command better discounts.

Another critical factor is that whereas many of these plans once had a $1 million maximum on major-medical expenses, the ACA has eliminated the use of annual and lifetime caps. So that’s one cost-control mechanism that’s now off the table. On top of that is the widely anticipated 40% excise tax on Cadillac-style health plans that takes effect in 2018.

“No good deed goes unpunished,” Smith quips.

There’s also a patient-research fee, which went from $1 per covered life a couple of years ago to $2.80 per life, according to Jordan. Yet another cost driver is that the ACA allows for dependent coverage up to age 26, adds DeFrehn, describing the added tax burden as “a transfer of assets from self-funded programs to commercial insurance carriers.”

He says other considerations include a heavy mix of pre-Medicare retiree coverage for people who are at the high-cost end and those who live in major metropolitan areas, particularly in the Mid-Atlantic and Northeastern states. Many Taft-Hartley funds also cover retiree populations, whose longer life expectancy costs more than what was anticipated 10, 20 or 30 years ago, Jordan adds.

Then there’s the issue of a lagging economic recovery that prevented some rank-and-file members from working enough hours to maintain their eligibility for health care coverage in the first place, DeFrehn notes. But he’s sanguine that a higher demand for skilled labor projected over the next decade or so could enable Taft-Hartley plans to grow again.

Staying Competitive Employers that contribute to Taft-Hartley plans, no doubt, are facing higher health care benefit and pension costs, which, in turn, places tremendous pressure on wages.

“You get to the point where you’ve maxed out on competitiveness, and the only place to get additional cost is to get back to the worker and take a bigger piece of the pie for his compensation,” DeFrehn explains. “So you end up with some workers that aren’t very happy because they don’t get raises.”

April 2015 | The Self-Insurer

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TAFT-HARTLEY | FEATURE As a result, the ACA has forced self-insured Taft-Hartley plans to determine better ways to remain competitive in terms of wages and benefits for rank-and-file members, Jordan says. Beyond tweaking copays and deductibles, he sees promise in high-performance networks, customizing certain benefits and member-engagement strategies that help plan participants become much smarter consumers of their health care.

“Many of these plan sponsors are going to have to take a step back and figure out, ‘how do I stay below that threshold where I’m going to incur even greater cost that what I’m seeing today?’” he explains. In anticipation of the Cadillac tax, Jordan notes that many of these funds will face a significant tax above a certain threshold. “Today it’s $27,500 a family,” he says. “It will change by the time we get to 2018. That’s not

anything that’s tax deductible, and that’s above the cost of the plan.”

With its back against the wall, the MLBF now needs to reach far above any low-hanging fruit to save on health care costs. Among the strategies it is now pursuing on behalf of its members and their families: encouraging the use of nurse practitioners at CVS and Walgreens drug store chains, as well as urgent care centers as an alternative to hospital ERs. Express Scripts also is used to help manage pharmacy benefit claims.

The MLBF, which has been around since the 1960s, covers about 20,000 lives, approximately 8,100 of whom are union members working in construction and on roadside crews across New England who also receive a pension and annuity fund.

The union last year paid out about 250,000 medical, hospital, pharmacy dental and vision claims totaling an estimated $80 million. Roughly 800 contractors contribute to the union’s funds during the prime construction season. The fund’s focus is on preventive care and wellness, with no deductibles on physicals for member and their spouses.

Some Taft-Hartley plan sponsors and unions have encouraged mergers with the small plans to try to better manage administrative costs by achieving economies of scale to which the larger plans have become accustomed, DeFrehn notes.

One last piece of the puzzle is to lobby Congress to reduce the tax burden on these plans, though it won’t be easy convincing conservative Republicans to pursue an action that could be seen as a favor to the organized labor movement.

“We spent a lot of time with the administration to convince them that the statute did not give them the authority to impose the temporary reinsurance

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SIIA Forum Targets Taft-Hartley Plans Mindful that self-insured Taft-Hartley plans face an uphill battle in a post-health care reform environment, SIIA has sought to engage more directly with this market segment.

fee on self-funded, self-administered plans,” DeFrehn says. “Eventually we were successful, but only for the second two years. They had already sent out the notices to the insurance carriers as to what their portion of the temporary reinsurance fee would be and to build into their premiums.”

These plans have typically been “pretty well managed” because union members view their health and welfare benefits “as a direct offset of money they would otherwise get in their compensation,” according to DeFrehn. “So they’re typically very cautious about not being excessive in benefit structures and also trying to keep some kind of containment on the costs themselves by accessing discounted provider networks, going through PBMs and formularies, those kinds of things.”

On average, Smith says 90% of union health plan contributions revert back to workers and their dependents, while the rest covers administration costs. “That is a great statistic when you look at how efficient these plans have run,” he says.

As such, he believes self-insured Taft-Hartley plans offer the self-funded community at large valuable lessons in cost efficiency, as well as plan design and personal service to the employees and their dependents. “It’s really a hands-on approach,” he adds. ■ Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for more than 25 years.

“It has become increasingly clear that the interests of selfinsured Taft-Hartley funds and employers are closely aligned in many cases,” explains SIIA President and CEO Mike Ferguson.

SIIA will host the Self-insured Taft-Hartley Plan Executive Forum at the Marriot Metro Center in Washington, D.C., on April 29-30 – featuring leading industry experts and unique networking opportunities.

Keynoters will include Mike Ferguson and Leo Garneau, SVP of PHX. The event also will feature the following educational sessions: - Understanding the Value of Your Self-Insured Plan

© Self-Insurers’ Publishing Corp. All rights reserved.

- Plan Design Strategies to Control Costs - Knowing Your Provider Payment Option - The Stop-Loss Insurance Carrier Perspective - Legislative/Regulatory Update - Approaches for Providing Coverage for Early Retirees

April 2015 | The Self-Insurer

9

Remembering Dick Goff

O

n February 28 our industry lost a real hero.

Richard C “Dick” Goff passed unexpectedly from complications of surgery leading to cardiac arrest following a slip on ice at his home on his 69th birthday. It was a devastating shock to all who

had the pleasure of knowing him.

Dick was a very special person, not only to our industry but to all who had the opportunity to do business with him or know him as a friend. He was a true “doer” and a much focused businessman. I can recall when I first met Dick some 20-plus years ago at a SIIA event where he made several suggestions on how SIIA could expand its services and representation of the industry. After listening I said, “well, Dick you have some good ideas and you should consider getting actively involved and bring them to the SIIA leadership.” Dick just nodded his head and, the next thing I knew, he took the task to heart by serving on several committees through the following years, testifying before Congress and many state legislatures on behalf of the industry and ultimately serving as president and chairman.

SIIA’s leadership was stunned at his sudden passing yet quick to articulate the impact of his loss. “Dick was a hugely influential figure in our industry and our

Written by Jim Kinder 10

The Self-Insurer | www.sipconline.net

association,” said Mike Ferguson, SIIA’s chief executive officer. “He was a constant

and vigorous supporter of the self-insurance marketplace and a friend to all who knew him. Our thoughts today are with his family, colleagues and many friends.”

Erica Massey, executive vice president of SIIA and president of the Self-Insurers’ Publishing Corp., said,

“Dick was not only an inspiration and a tireless supporter of the self-insurance/alternative risk community, he was also a dear friend to all and a great mentor. His vibrant personality and unwavering support of the industry will truly be missed but never forgotten.”

A large group of Dick’s family, friends and industry figures gathered at a north Baltimore hospitality venue for a memorial service and, according to his wishes, “a party.” A focal point was an antique wooden Budweiser case containing a commemorative copper plaque and six Budweiser bottles that – following the directive of Dick’s will – were filled with his ashes. That was Dick, who could be playful even in serious times.

His company, MIMS International, which later became The Taft Companies, is as unique as Dick himself. A strong independent broker, administrator and captive insurance management firm, Dick and his team crafted some of the most unique programs for his clients. There were times his closest colleagues felt compelled to reel him back into the “box,” but more often than not his innovative thinking prevailed.

His partners, Allen Taft and Mary Claire Goff (Dick’s best friend, loving spouse and business partner) made an awesome team that I’m sure will continue to follow and implement Dick’s vision for years to come.

© Self-Insurers’ Publishing Corp. All rights reserved.

Dick was a true visionary, always thinking “outside the box” with a strong positive attitude. I don’t think the word “can’t” ever was part of his vocabulary.

To Dick everything was possible and he proved that time and again both in his business world and personal life as well. In business, he never feared his

competitors and was eager to share information and extend a helping hand if asked. Like all of us, he had his gripes but I never heard him say a bad word about anyone.

April 2015 | The Self-Insurer

11

During his SIIA tenure Dick helped to expand its presence in workers’ compensation, international operations, formation of special coalitions to advance alternative risk finance. In addition he served as a founding member of related organizations including the South Carolina Captive Insurance Association, the Captive Insurance Council of the District of Columbia and the Montana Captive Insurance Association (where he was currently serving on its board of directors). He was also instrumental in the expansion of SIIA government relations work with a focus on alternative risk financing as well as employee benefits, serving as author of The Self-Insurers’ monthly column “The ART Gallery,” director/officer of the Self-Insurance Educational Foundation and more. To say Dick was “involved” is an understatement!

Dick leaves a strong legacy and a devoted family who I am confident will carry on his vision, enthusiasm and support. Case in point is his son Jon, who along with his wife Karen are 12

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dedicating their lives to helping young men who have experienced a rough time in life through their special “ride to work” program. With the help of Dick and Mary Claire and other supporters, Jon and Karen formed Gallant Chance Ranch, a nonprofit organization based in Montana that helps at-risk teens become productive citizens. It was fitting that the announcement of his passing noted that in lieu of flowers memorial donations could be made to Gallant Chance Ranch. I encourage readers to visit www.gallantchanceranch.org and consider supporting them, not only as a tribute to Dick but for the excellent work they are doing to help others in need. Donations may be made online or mailed to Gallant Chance Ranch, 1097 West Dry Creek Rd., Belgrade, MT 59714. ■

R.I.P., My Friend and Colleague, Dick Goff Jim Kinder was among the founders of SIIA and served as its Executive Director/ CEO from its inception in 1981 until his retirement in 2008. In addition to creating SIIA he formed several other industry organizations including South Carolina Captive Insurance Association, District of Columbia Captive Insurance Association, Montana Captive Insurance Association and Self-Insurance Educational Foundation. Jim remains active in the industry and currently serves on the board of directors of Montana Captive Insurance Association and is Chairman of Self-Insurers’ Publishing Corp.

He is also active in philanthropy activities serving as president/CEO of Kinder Family Foundation, Inc., a non-profit organization supporting continuing education through scholarships, children’s issues and seniors. Jim can be contacted at 864-409-8347 or jkinder120@icloud.com.

Schedule of

Events

Sept

More Info coming soon!

Self-Insured Executive Summit

© Self-Insurers’ Publishing Corp. All rights reserved.

September 14-16, 2015 Apex City of London Hotel | London, England

october

April

Self-Insured Taft-Hartley Plan Executive Forum April 29-30, 2015 Marriott Metro Center | Washington, DC

Taft-Hartley plans refer to the multi-employer pension plans collectively bargained by a union and a group of employers, usually in related industries.

Taft-Hartley plans are governed by a trust, half of whose trustees are appointed by the employers and half by the union. This retirement plan model has enabled tens of thousands of small and medium-sized businesses to provide workers with the traditional defined benefit pensions that used to be standard among larger employers, but have now virtually disappeared in the non-unionized private sector.

MaY

2015

NEW EVENT!

Self-Insured Workers’ Compensation Executive Forum May 12-13, 2015 Windsor Court Hotel | New Orleans, LA SIIA’s Annual Self-Insured Workers’ Compensation Executive Forum is the country’s premier association sponsored conference dedicated to self-insured Workers’ Compensation employers and group funds.

In addition to a strong educational program focusing on such topics as analytics, excess insurance, wellness initiatives and risk management strategies, this event will offer tremendous networking opportunities that are specifically designed to help you strengthen your business relationships within the self-insured/ alternative risk transfer industry.

35th Annual National Educational Conference & Expo

October 18-20, 2015 Marriott Marquis | Washington, DC SIIA’s National Educational Conference & Expo is the world’s largest event dedicated exclusively to the self-insurance/ alternative risk transfer industry. Registrants will enjoy a cutting-edge educational program combined with unique networking opportunities, and a world-class tradeshow of industry product and service providers guaranteed to provide exceptional value in three fastpaced, activity-packed days.

April 2015 | The Self-Insurer 13 www.siia.org

› For more information visit

ART

Gallery Written by Dick Goff

One Way to Stay Out of Trouble with the DOL This article was written prior to Dick Goff’s passing and is his final ART Gallery piece.

All of us at The Self-Insurer, and those in the alternative risk transfer industry will miss his insight, humor and kindness.

“The best way I know to present a correctly run plan is to have an independent fiduciary review every aspect, every transaction, to make sure the plan will survive government scrutiny,” says Philip Healy, executive director of the Automobile Wholesalers Association of New England (AWANE), which operates a multiple employer welfare arrangement (MEWA) covering members’ employee benefits.

I

t’s no wonder that the U.S. Secret Service has had its problems in recent years. With millions of government employees it would be impossible to keep a secret. For example, it wasn’t a secret very long – if ever – that the government dislikes self-insured employee health plans. That’s because the government fancies itself as the Big Daddy of health insurance, and doesn’t like the competition, especially competition from a system that does it better.

So we suffer interference from several levels of federal and state government, including the Treasury Department and its attack dog, the IRS, the finding-itsway Department of Insurance and the defenders of obsolescence, the National Association of Insurance Commissioners.

So, what’s a law-abiding ERISAenabled self-insured employee health plan sponsor to do? The answer, my friends, is to keep a squeakyclean operation that will survive any government review, especially an inquiry by the Department of Labor (DOL), serving as the enforcement agency for ERISA plans.

14

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I think the same approach makes sense for any ERISA plan to assure that all its financial relationships with service providers and underwriters will pass muster under the DOL’s dreaded “prohibited transaction” rule.

“A lot of organization managers don’t think about how dealings with related companies can look to outsiders or to the government,” says Bill Kropkof, head of the ERISA Advisory Group in Henderson, Nevada. His resume includes several years with the Department of Labor as investigator for the Employee Benefit Security Administration.

“The time to make sure everything about a plan is airtight is when it’s being structured, not when the DOL comes to call,” Kropkof says. “If a DOL review finds what they consider a prohibited transaction, they can force a company to undo years

of certain operations, and that is a very expensive and painful experience.”

Of course, the obvious example of a suspicious transaction is to buy insurance – or any product or service – from your bother-in-law, no matter how attractive an idea your wife makes that sound. But that doesn’t have to suffer the “prohibited transaction” verdict if rates and any commissions are appropriate to the market and disclosed to all parties. An independent fiduciary can pass judgment on an ERISA plan’s dealings way upstream from when the DOL would take notice, and advise a benefits plan sponsor how to make any corrections.

“It can be a matter of making a no into a yes,” said Philip Healy of AWANE during our conversation on this issue.

© Self-Insurers’ Publishing Corp. All rights reserved.

Philip cited a couple of common practices that can become big mistakes in the “prohibited transaction”

category according to the DOL. One is to put a load to help defray operating and administrative expenses onto an insurance rate that is sold to members. Another is to have an agency owned by the association collecting undisclosed commissions, again to help pay overhead. “Any plan trustee could have substantial liability if such practices were ruled out of bounds,” he said.

With all these reasons for an independent fiduciary to review and, if necessary, sanitize ERISA plan transactions one could surmise that our industry would lead the league in applying the services of independent fiduciary consultants. One would surmise incorrectly.

category,” says Bill Kropkof. “One reason is that many people with appropriate skills and background prefer not to take on the liabilities of making judgments about DOL enforcement matters.”

The availability of independent fiduciaries will likely increase as demand grows. When you think about it, for a plan sponsor using an independent fiduciary can be a matter of getting an advance reaction to the plan’s structure from a person with the qualifications to stand in for the government, but with greater charm. ■ Dick Goff was managing member of The Taft Companies LLC, a captive insurance management firm.

My impression is that a very small portion of the self-insurance industry avails itself of independent fiduciary services. “We’re not a Yellow Pages

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April 2015 | The Self-Insurer

15

Considerations When Evaluating Vendor Solutions for Electronic Adoption and Compliance

O

rganizations are faced with a variety of choices when it comes to potential electronic payment solutions. Finding the right product for an organization is more than checking a capabilities list; it also needs to include evaluating service quality, implementation timelines

and associated integration costs. This report will educate the user on important considerations when conducting a vendor review.

Electronic Adoption – Is it Really Happening?

Indeed, it is. The change is occurring, in part, due to the regulatory development of global operating rules related to the transmission of electronic funds transfer (EFT) and Electronic Remittance (ERA). 1 Effective on January 1, 2014, the proposed new operating rules in development by CORE/CAQH in response to Section 1104 of the Affordable Care Act (ACA) is the driver for the insurance industry to become compliant. This legislation compels healthcare payers to have the ability to transmit electronic payments to any provider that requests transmission of payment and remittance data in this manner. Under the proposed new rules, each health plan Written by Jennifer Plake and Tom Davis 16

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will be required to attest to their compliance with significant penalties as a deterrent.

As these requirements and rules further develop, many health plans will rely

on their payment administrator to assist with this compliance. As the payer steps in, many may find they need help from a third party vendor who has already achieved CORE certification. When choosing a vendor partner, there are several important factors to consider.

• Do your homework – Multi vs. Single Source Solutions • Vulnerabilities and security risks • Timeline for achieving compliance

Do Your Homework – Multi vs Single Source Solutions

© Self-Insurers’ Publishing Corp. All rights reserved.

Multi-Source Solutions Some vendors appear to offer everything you need. However, when more closely examined, these vendors specialize in only one payment resolution method.

As an example, there are many electronic vendors offering a virtual card driven solution. EFT capabilities, which deliver the compliance you seek, are often limited with insignificant levels of providers actually enrolled to be paid in this manner. This creates risk and may introduce new complications in your workflow as often time the burden will fall back upon the payer to engage and enroll providers or seek additional vendors to provide the needed EFT adoption.

These suppliers seem attractive at first because they offer a lucrative revenue-sharing option, generated from the virtual card. However, the virtual card is only a single piece of evaluating a sustainable longterm solution. When conducting your vendor evaluation, important considerations should be: • Do they have online support for providers to easily sign up for compliant EFT/ERA and opt-out of virtual cards?

• Do the various payment options require a separate and distinct funding process?

• Can they produce a compliant EFT/ERA from your data file?

• How many EFT providers do they have enrolled?

• How do they enroll EFT/ERA providers?

Payers evaluating these solutions should also pay close attention to the implementation plan and payment reconciliation workflows. Many times multi-source solutions issue and settle payments from three separate sources. Your internal workflow can become cumbersome and require additional support to reconcile all of your payments. Be sure to request a documented Implementation Plan with timelines and resource expectations.

You can avoid a failed or stalled implementation by using a well-defined implementation plan to set proper expectations. However, be aware of indicators that you are implementing multiple payment processes with a single vendor. If the vendor issues and settles payments from different sources based on payment modality, daily workflows and processes may become more complex from your current state.

While quality multi-source products can produce beneficial results, expenses can climb if you have to add two or more multi-source vendors that each solve a single need. The payer may feel they need to reinvent themselves in order to accommodate each vendor’s separate methodologies. Be confident that you do not need to implement a short-term or incomplete solution. A multi-source solution usually cannot manage all of your payments without complicating your daily operations.

Single Source Solutions Single Source solution vendors can manage

all of your payments and offer the payer a steady reconciliation process.

A single source solution will preclude a payer from interfacing with multiple vendors, banks or other interfaces of the payment stream. Effective solutions should include important features such as the ability to link the real-time payment status to the adjudication system detail and originating funding event. This simply means that a payer can locate all relevant details for all payments through a single data source including images of cancelled checks.

Additional important distinctions should focus on a long-term vision of migrating providers to electronic payments without exclusive dependence upon a virtual card. Payers should ask very specific questions about the number of providers enrolled for EFT and for specifics on their population of Provider Tax ID’s. If the vendor cannot confirm a match of 25% or greater, the program will very likely achieve substandard results. ERA capabilities should also be properly vetted in this discussion.

Confirm the vendor’s capabilities to produce a compliant 835 from your current extract or print file. Ask specific questions about their experience with different adjudication systems, current production volumes and if any crosswalk or tables will be required.

Any vendor under consideration should have well-documented implementation plans and weekly accountability calls. Newly implemented payers will be a very important reference point to confirm associated implementation timelines.

The implementation team should have the ability to manage and lead the customer through a fully customized implementation that accounts for unique customers or plan designs.

April 2015 | The Self-Insurer

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The result of these efforts is a refined, streamlined daily operation and workflow.

scalability. Companies committed for

A quality decision under a single source platform should include:

the long-term should conduct regular

• • • • •

assessments and ensure that growth is

Market leadership in virtual card and EFT/ERA distribution Provider payment preference management Compliant EFT/ERA from your existing data file Single resource for reconciling all payments – card, check and EFT Implementation results that can be verified through client references

aligned with infrastructure capabilities.

In a world where Fortune 100 companies are subject to data breaches, it is imperative to understand what measures a vendor

Consider Vulnerabilities and Security Risks

takes to protect your data. With

A critical step in the evaluation process is security. In healthcare payment processing there are many possible exposures such as private health information and banking transaction details. In your evaluation, ask how personal health information is protected and how security breaches and financial loss are avoided.

Established vendors are comfortable providing documented support of their security infrastructure and software protocols along with backup, failure and redundancy programs. Further, they can offer a voluntary third party audit of their organization proving their claims. This level of scrutiny compliance with not only healthcare regulatory procedures such as HIPAA and ACA, but financial transactions are protected as well through FDIC insured payments and Payment Card Industry Data Security Standards (PCI DSS) compliance.

With the aforementioned mandate and operating rules, third party payment services have quickly become a growth industry with many new entrants. Proper due diligence should include specific questions about a vendors growth and

user interfaces and provider portals,

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there are often many access points that expose a company to potential breaches. Vulnerability testing and regular static scans are indicators that your vendor is taking the necessary precautionary measure.

If the vendor uses a series of vendors themselves to provide their services, be cautious that all parties maintain the same level of security standards. Distinct lines of responsibility and liability should be clearly defined in contracts.

April 2015 | The Self-Insurer

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Timeline for Achieving Compliance Achieving compliance quickly can be a real possibility. Once the due diligence process is complete and you have narrowed your vendor selection, you can verify your selections are CORE certified if you have not already by going to http://corecertification.caqh.org/CORE_organizations. Each health plan can begin achieving compliance on day one of production with a CORE Phase III Certified vendor.

© Self-Insurers’ Publishing Corp. All rights reserved.

A fully engaged payer and vendor can complete an implementation in 6-7 weeks.

If your due diligence indicates that your vendor selection cannot perform within these parameters with validated references, this may be an indication to consider other options.

Tom Davis is the Executive Vice President of Business Development and Jennifer Plake is the Strategic Sales Associate at ECHO Health, Inc., a leading provider of electronic healthcare payment solutions. Serving more than 50,000 ERISA health plans and fully insured groups, ECHO processes more than $10 billion in payments annually to providers and members through industry-leading payers. Founded in 1997, ECHO is a privately held company located in Westlake, Ohio.

Electronic payment solutions range in quality and effectiveness. To ensure your organization partners with a vendor that can deliver the capabilities your organization needs ask the following questions: Do they provide a single source solution to handle all of my payments seamlessly? Can they provide documented support of their security infrastructure and programs? Does their solution allow my company to achieve compliance quickly? If the answer to each of these questions is yes, then you have found a quality vendor. ■

April 2015 | The Self-Insurer

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Of Credit and

Ratings

Captives A

fter the 2008 credit crisis, stringent credit ratings from reputable ratings agencies became an increasingly important tool for insurance companies and the greater ďŹ nancial sector. Even though many credit rating agencies took a reputational hit from the crisis, as third-party evaluators their services are in ever greater need. While a good rating is crucial for traditional insurers, alternative risk transfer vehicles, primarily captives, do not have the same imperative to hold a rating.

Credit Ratings and Reputation

Written by Karrie Hyatt 22

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As captives are private companies, beholden only to their parent companies and policyholders, having a good credit rating is not necessarily required to run a good business. Since the credit crisis, it can be argued, any company with the ability to get a solid rating, should. For captives this is especially true, given the mistrust captives encounter by those

CREDIT RATINGS | FEATURE outside the industry. The New York Department of Financial Services’ accusation that captive insurance is a “shadow industry” may be the most well-known recent criticism of the captive industry, but it is also just the tip of the iceberg in terms of the mistrust the industry faces.

Most captive industry insiders embrace the idea of more transparency within the captive industry. Yet there is a fine balance between public and private that captive insurance companies face.

That is where credit ratings can aid the industry. A good rating can give a big boost to a captive’s reputation and solidify its standing as a profitable business. Of course, the opposite is true. If a captive gets a low rating it would overshadow any good points the company would like to promote. Often times, when an already rated company’s rating is lowered, they will withdraw from the process entirely rather than be faced with a score that reflects poorly on their business operations.

Credit ratings can impact a captive’s ability to do business for both good and bad and a rating will affect different types of captives in different ways.

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Ratings Advantages Obtaining a good credit rating can be both time-consuming and expensive, but it’s usually worth the benefits. For any financial company, a good credit rating will validate the company’s operations, it will facilitate the raising of capital and it helps the company to meet benchmarks in comparison with similar companies. For captive insurance companies the benefits go even further.

To start, a good credit rating can help support the parent company’s operations and can help promote the captive to new policyholders.

More importantly, a solid rating can help secure reinsurance and solidify fronting arrangements. Credit ratings improves business relations with service providers for captives, especially in the reinsurance market.

Ken Barrett, chief executive of Besso Re, the reinsurance division of Besso, said that a captive’s rating won’t necessarily affect it in the London reinsurance market, but there are U.S. reinsurers that won’t quote or reinsure a non-rated captive or risk retention group (RRG). However, he continued, “A captive can probably secure better reinsurance terms if it has a rating of at least ‘A-‘ from A.M. Best. It makes the reinsurer more comfortable with the financial status of the company.”

There can be negative effects for a captive without a credit rating.

Securing the best arrangements with fronting carriers or reinsurers is more difficult. According to Derick White, president of Strategic Risk Solutions Vermont, a captive management company with operations in the U.S. and off-shore, “Some insurance buyers have strict guidelines that they may only purchase from ‘A’-rated carriers.

While this guideline [was] crafted long ago and perhaps without thoughtful cause, it still would eliminate a nonrated insurer from even proposing to insure these buyers.”

In the current economy, a credit rating also gives the captive more transparency in their business operations. According to White, “Once a company has a rating, that rating is always in the minds of its officers and directors. Thinking about how the rating agency would react to capital levels, dividends and premium growth are often given major considerations.

The rating agency becomes another regulatory body.”

It is relying on third-party credit rating agencies as a de facto regulator that helps put captives in good stead with non-domiciliary and federal regulators. Captives are only required to financially report to their states of domicile, part of what makes industry detractors nervous, but a credit rating from a third-party helps to appease critics, to some extent.

Ratings Disadvantages While a solid credit rating can be key to providing transparency to the industry, credit ratings are not for every captive. If the captive is just starting up a rating may reflect poorly on the company – regardless of operations. “A company would have a difficult time in its early years as, by definition, it would not have any history,” said White. “This would negatively impact a rating it would receive. Ideally, the captive should seek a rating after it has at least five years of very good operations and good steady growth. Of course, with a successful history, it not may need a rating.”

The cost/benefit ratio should also have an impact on whether a captive seeks a rating. Companies have to pay to obtain a credit rating and have to prepare and assemble a large amount of data for the credit rating agency for review. For small captives or pure captives a simple cost/benefit analysis may determine that the cost would outweigh any benefits.

Once a credit rating is issued, a company then needs to work to keep up or improve upon that rating. While this may not be a true disadvantage, if another crisis should hit the financial markets, company’s credit rating could take a major downturn. This could, in turn, be detrimental to a captive’s business prospects.

April 2015 | The Self-Insurer

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CREDIT RATINGS | FEATURE

Captive Types That Benefit from a Rating

When trying to attract new policyholders, “A good rating can almost speak for itself in promoting the company to new and existing insureds,” said Derick White.

Credit ratings are less important for single-parent or pure captives – a captive only insuring its parent company’s risk. “Not all captives should or need to obtain a rating,” said White. “Most single-parent captives, for example, are used only for internal purposes with no external policyholders included in the program, or outside entities relying on certificates of insurance.”

In addition to group captives, RRGs on the whole benefit from having a credit rating since they operate across state lines in non-domiciliary jurisdictions. A solid rating for a RRG can help smooth the way with non-domiciliary regulators.

Group captives are the type of captive that benefit most from obtaining a credit rating. Group captives include association captives and industry captives. These types of captives directly compete with the commercial market where almost all of those companies hold credit ratings.

Karrie Hyatt is a freelance writer who has been involved in the captive industry for nearly ten years. More information about her work can be found at: www.karriehyatt.com.

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While there are many benefits of credit ratings for captive insurance companies, working to obtain one is not always in the best interest of the company. For pure captives or new captives, credit ratings are probably unnecessary or unattainable. For various types of group captives, with a few years of business history, credit ratings can be an excellent tool for growing business.

In terms of the overall industry, credit ratings can help improve the reputation of captives with the financial transparency that comes with them. ■

Would you navigate uncharted waters without a compass?

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As a leader in Group Captives, Berkley Accident and Health can steer you in the right direction.

With EmCapSM, our innovative Group Captive solution, we can help guide midsize employers to greater stability, transparency, and control with their employee benefits.

With Berkley Accident and Health, protecting your self-funded plan can be smooth sailing.

Stop Loss | Group Captives | Managed Care | Specialty Accident Insurance coverages are underwritten by Berkley Life and Health Insurance Company and/or StarNet Insurance Company, both member companies of W. R. Berkley Corporation and both rated A+ (Superior) by A. M. Best. Coverage and availability may vary by state. ©2015 Berkley Accident and Health, Hamilton Square, NJ 08690. All rights reserved.

BAH AD-2014-0141

www.BerkleyAH.com

April 2015 | The Self-Insurer

25

PPACA, HIPAA and Federal Health Benefit Mandates:

Practical

Q&A

The Impact of Staffing Firm Employees and Contingent Workers on the Employer Shared Responsibility Requirement Under IRC 4980H

T

he Employer Shared Responsibility requirement under Section 4980H of the Internal Revenue Code (the “Code”) (referred to hereafter as the “Employer Mandate”) generally require applicable large employers (i.e., those with 50 or more full time employees counting full time equivalencies) to offer group health plan coverage to their full-time employees or face possible excise taxes.

This requirement applies to all common law employees of the employer. Whether an individual is the common law employee of an employer is determined using the IRS’ 20-factor test.1 The IRS has summarized the test for employers as follows:

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Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.2 If an individual is determined to be the common law employee of an employer, the employer must satisfy the Employer Mandate requirements with respect to that employee, even if the individual is employed through a staffing firm or is short-term (i.e., a temporary employee).

This Article will describe how the Employer Mandate applies to each of various types of “contingent worker” employees and will provide practical advice for complying with the Employer Mandate.

Staffing Firm Employees We assume, for purposes of this article, that all reasonable steps have been taken to ensure that the individuals assigned by a staffing firm to the employer (“Assigned Employees”) will be considered to be common law employees of the staffing firm. However, as is often the case, an entity’s status as the common law employer may be unclear. Thus, we discuss below approaches for assessing and minimizing the risk under 4980H if the Assigned Employees are considered to be common law employees of the entity receiving their services (the Contracting Entity). Briefly stated these are: Option 1: Ensure the Assigned Employees are NOT the Contracting Entity’s common law employees under IRS common law analysis (and/or if they are common law employees, that the number is small enough as to not trigger the significant 4980H(a) penalty for any month);

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Option 2: Assume that the Assigned Employees will be considered as the Contracting Entity’s employees and take advantage of the IRS safe harbor3 by requiring the staffing firm to provide coverage under terms that would satisfy the Employer Mandate if they were employees of the Contracting Entity; or Option 3: Assume the Assigned Employees are the Contracting Entity’s employees and manage Assigned Employee hours to ensure they work no more than 130 hours in any month for the Contracting Entity.

Option #1: Do Nothing Under this option, a Contracting Entity would continue to assume that the Assigned Employees are not its employees-- and assume the risk that the IRS might reclassify the Assigned Employees as the Contracting Entity’s common law employees and subsequently assess excise tax liability each month with respect to each such Assigned Employee who was a full-time employee and also received a subsidy in the exchange that month. The excise tax for which the Contracting Entity might be liable in a month depends on the following:

• Would the reclassification of the Assigned Employees as common law employees cause the Contracting Entity to fail the “substantially all” test that month?

Example: assume a Contracting Entity has 1000 regular full-time employees in a given month to which it offers coverage to 98% (i.e. 980). However, the Contracting Entity also has 100 Assigned Employees who have full-time hours of service in a month. The Contracting Entity does not offer nor is it deemed to offer coverage to any of the 100.

Net result: the Contracting Entity would only offer coverage to 89% of full-time employees in that month (for 2015, the Contracting Entity would pass the substantially all test due to the transitional 70% threshold, but not in 2016).

If the Contracting Entity fails the substantially all test, then it would pay the 4980H(a) tax with respect to all full-time employees if just one full-time employee received a subsidy in the exchange.

• If the Contracting Entity does not fail the substantially all test, then the only excise tax that would apply is the 4980H(b) tax with respect to any employee (including Assigned Employees who are re-characterized as the Contracting Entity’s common law employees) who received a subsidy in an exchange for that month. The (b) tax is $250 per month for each full-time employee who received a subsidy in the exchange.

Option #2: Require the Staffing Firm or PEO to Offer Coverage Under this approach, the Contracting Entity would April 2015 | The Self-Insurer

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require the staffing firm or PEO to offer affordable, minimum value coverage to each Assigned Employee who is a fulltime employee while working for the Contracting Entity.

In this option #2 (also called the safe harbor), you are assuming worst case scenario – i.e., the Assigned Employees are your employees.

Consequently, you must use the same full-time employee identification method that you use for all other similarly situated employees employed by the same subsidiary.

A Contracting Entity choosing this option will need to amend its contract with the staffing firm or PEO to meet the safe harbor requirements. See Staffing Firm and PEO contracts later in this advisory for details.

Option #3: Manage Hours Worked Under this option, the Contracting Entity assumes that the Assigned

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Employees are its employees but does not require the staffing firm or PEO to offer coverage. Instead, the Contracting Entity manages hours down (or requires the staffing firm or PEO to contractually manage hours down) to less than 130 hours in a month so that Assigned Employees are not full-time in any given month.

This option is valid provided that the Contracting Entity can manage hours down successfully enough such that any Assigned Employees who actually have 130 hours in a month (i.e. those that slip through the cracks) do not cause the Contracting Entity to fail the substantially all test. If you are successful enough, then the only tax you might pay, if at all, would be the 4980H(b) tax ($250 per month) with respect each Assigned Employee who is considered to be a common law employee who receives a subsidy in the exchange.

Example: Assume Company X has 1000 full-time regular employees in a month to which Company X offers coverage to 98% (980).

Company X also has 100 Assigned Employees in a month. Company X is able to successfully limit 90 of those 100 Assigned Employees to less than 130 hours of service in a month. In that case, Company X would still offer coverage to 97% of its full-time employees, which means it would satisfy the substantially all test in 2015 (where the threshold is 70%) and also 2016 (when the threshold is 95%).

Assume further that all 10 of the Assigned Employees who were full-time in a month received a subsidy in the exchange (because they weren’t also offered coverage by the staffing firm or PEO that was affordable and provided

© Self-Insurers’ Publishing Corp. All rights reserved.

Stop Loss insurance products are underwritten by ReliaStar Life Insurance Company (Minneapolis, MN) and ReliaStar Life Insurance Company of New York (Woodbury, NY). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted, and its products issued. Both are members of the Voya® family of companies. Product availability and specific provisions may vary by state. © 2015 Voya Services Company. All rights reserved. LG12231 12/08/2014 164932

April 2015 | The Self-Insurer

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minimum value). In that case, Company X’s excise tax for the month would be a mere $2500.

Next steps with respect to this option: the Contracting Entity must determine how many Assigned Employees have historically had 130 hours of service in any given month and then: 1. Determine whether failure to offer coverage to these Assigned Employees who have 130 hours of service will cause the Contracting Entity to fail the substantially all test; 2. If it will cause the Contracting Entity to fail the substantially all test, determine whether the Contracting Entity can effectively manage the hours down for enough Assigned Employees so that it passes the test; and 3. If it doesn’t cause the Contracting Entity to fail the substantially all test, determine whether the Contracting Entity is comfortable paying the potential (b) tax if all Assigned Employees who are still full-time receive a subsidy in the exchange.

Practice Pointer: Even if hours are

© Self-Insurers’ Publishing Corp. All rights reserved.

managed down to avoid the Employer Mandate, the Contracting Entity should check the terms of its plan to ensure the employees provided by the staffing firm or PEO are excluded.

Staffing Firm and PEO Contracts If a Contracting Entity wants to satisfy the regulatory safe harbor for staffing firms, it would be well advised to amend its contract with the staffing firm or PEO to address the Employer Mandate. The regulations deem a Contracting Entity to have made an

offer of coverage if an offer is made by the staffing firm.4 To gain this protection, the staffing firm’s or PEO’s offer of coverage must meet all the requirements that would apply if the Contracting Entity were offering coverage directly to the Assigned Employees. That means that the coverage offered must provide minimum value and must be affordable. In addition, the offered coverage must extend to dependent children through the end of the month in which the child attains age 26.

The Contracting Entity should also address the newly issued 6055 and 6056 reporting requirements. Unlike the 4980H regulations, the regulations issued for the reporting requirements and the instructions for the applicable IRS forms (e.g., 1094-C and 1095-C) do not specifically address staffing firms. The common law employer of an employee must file Form 1095-C if the employee is full-time or is enrolled in coverage under a self-insured plan. Therefore, the Contracting Entity will need to specifically address whether it or the staffing firm or PEO is the employer of the Assigned Employees after applying the IRS’ 20-factor common law employee analysis. As you know, that is a facts and circumstances test, so the Contracting Entity will need to make a good faith determination regarding whose employees they are.

• If the staffing firm or PEO is the employer – the staffing firm or PEO will file a Form 1095-C for the employee and include the employee in its Form 1094-C count.

• If the staffing firm’s client (the Contracting Entity) is the common law employer – the Contracting Entity must file the Form 1095-C for the employee and include them in its Form 1094-C employee count. The staffing firm will need to provide all the information necessary to complete the Form 1095-C for the Assigned Employee, such as the months in which an offer of coverage was made, when the employee was in a limited non-assessment period, the cost associated with the least expensive employee-only coverage, etc.

The Contracting Entity may want to specify in the contract that the staffing firm or PEO will complete the filings or that they will produce the information above in a timely manner so the filings can be completed by January 31st.

Finally, the Contracting Entity may want to include indemnification language in the contract in case the staffing firm fails to offer compliant coverage and/or fails to provide the necessary information to allow the employer to meet its 6055 and 6056 reporting requirements.

The ABLE Act Recent legislation, known as the ABLE Act, that takes effect in 2016 will require certified professional employer organizations (“PEOs”) to be responsible for a customer-employer’s employment taxes and withholding obligations.5 A PEO is a certified PEO if the PEO posts a bond, complies with reporting obligations and submits audited financial statements.

Although a PEO will be treated as an employer in the sense that it is responsible for paying employment taxes, the ABLE Act specifies that the Act “shall not be construed to create any inference with respect to the determination of who is an employee or employer”6 for Federal tax purposes or for any other purposes. This means that employers utilizing a PEO will not be able to automatically exclude PEO employees for 4980H purposes.

Practice Pointer: The ABLE Act will not affect application of the Employer Mandate to employees obtained through PEOs or staffing firms.

April 2015 | The Self-Insurer

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Temporary Employees The Employer Mandate does not differentiate between permanent and temporary employees. If a temporary employee is reasonably expected to work at least 30 hours a week, the employer must offer the employee health coverage at the end of the waiting period, which is generally the first day of the employee’s fourth month of employment. If the employer fails to make an offer of coverage, the employer risks incurring an excise tax. If a temporary employee is not reasonably expected to work at least 30 hours a week, the employer does not need to make an offer of coverage to the employee until the end of the 1-year look-back measurement period (assuming he/she averages 30+ hours/week during that period).

Practice Pointer: Employers will want to check their plan documents to ensure temporary employees are not excluded. Or if exclusion is intended, employers will want to ensure that the excluded temporary employees do not cause the plan to fail the substantially all test. ■

provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by email to Mr. Hickman at john.hickman@alston.com.

The Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans.

This monthly column provides practical answers to administration questions and current guidance on ACA, HIPAA and other federal benefit mandates.

www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/ Employee-Common-Law-Employee

Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, Carolyn Smith and Dan Taylor

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References www.irs.gov/pub/irs-utl/x-26-07.pdf

1 2

Treas. Reg. § 54.4980H-4(b)(2)

3

Treas. Reg. § 54.4980H-4(b)(2)

4

26 U.S.C. § 3511

5

26 U.S.C. § 7705(h)

WE HAVE THE

EXPERTISE

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AND A COLLABORATIVE CULTURE TO HELP YOU SUCCEED.

Just having group benefits expertise is not enough. At AmWINS, we have taken specialization one step further by creating a practice that enables our team of specialists to collaborate with one another quickly, helping you give the best options to your self-funded clients. That’s the competitive advantage you get with AmWINS Group Benefits.

SPECIALIZING IN GIVING YOU MORE.

April 2015 | The Self-Insurer

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SIEF Golf Tournament at Camelback Country Club in Scottsdale, Arizona

T

he Self-Insurance Educational Foundation, Inc. (SIEF) is a 501(c)(3) non-profit organization affiliated with the Self-Insurance Institute of America, Inc. (SIIA). Its mission is to raise the awareness and understanding of self-insurance among the business community, policymakers, consumers, the media and other interested parties. SIEF recently announced the launch of their new website www.siefonline.org.

SIEF held its always popular golf tournament at the Camelback Country Club during SIIA’s Self-Insured Health Plan Executive Forum on March 4th.

SIEF would like to thank the following people for their support by participating in the tournament: -

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Thomas Belding, Professional Reinsurance Marketing Services Michael Branco, The Phia Group, LLC John Bryan, First Health Jason Davis, The Phia Group, LLC Joann DeBlasis, Navigators Management Company Kara Dornig, First Health Joseph Hodges, INETICO, Inc. David Huntington, Planned Administrators, Inc. Russ Krueger, Ocozzio

1st place – Jay Ritchie, HCC Life Insurance Company, Robby Kerr, Group Resources, Inc., Duke Niedringhaus, J.W. Terrill, Inc. and Jerry Castelloe, Castelloe Partners, LLC - Sherri Tetachuk, DCC, Inc. - Don Thaler, Bardon Insurance Group - Daniel Wolak, ULLICO

The SIEF Board of Directors would like to extend a special THANK YOU to all sponsors: Cottrill’s SP, HealthSmart, Pay-Plus Solutions, Inc. and The Taft Companies.

More Information Coming Soon!

Self-Insured Executive Summit in London September 14-16, 2015, Apex City of London Hotel Look for more information coming soon on more SIEF events. ■

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- Brian Kruse, DCC, Inc. - Rob Lesko, Wilson Elser - Duane Ludden, Navigators Management Company - Thomas Nuttle and David Obrochta, Cottrill’s SP - Jody Potts, Helios - Rick Ritchie, RICS - David Roth, Three Rivers Provider Network - John Sigman, First Health

April 2015 | The Self-Insurer

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Streamlining the TPA Licensing Process

I

f you work for a third party administrator (TPA) and have been charged with the task of determining the licensing needs of the firm, it can seem overwhelming to say the least. However, take heart because there are ways to streamline this process. I have been involved in the TPA licensing process for many years and I will share some of my experiences with you.

Knowing the Scope of the TPA’s Operations First and foremost, you need to have a complete understanding of the scope of the TPA’s operations. There are jurisdictions that provide exemptions from licensing or from licensing requirements for certain activities. For example, some jurisdictions provide exemptions for a TPA that exclusively administers self-insured plans that are governed by ERISA. There are a couple of jurisdictions that provide a licensing exemption for a TPA that does not administer claims. There are also a few jurisdictions that provide an exemption for a TPA that has fewer than 100 insureds residing in the state.

State Laws Written by Scott Sheffer FLMI, CLU, AIRC, HIA, MHP 36

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With a clear understanding of the scope of the TPA’s operations, the next step is to review the state’s definitions of a TPA as set forth in the state laws.

The majority of licensing exemptions will be set forth in these definitions. If you

don’t have access to an online legal service, state laws can be obtained online from the respective state insurance department website. It may be a daunting task, but the laws for each state in which the TPA will be operating have to be reviewed. With an understanding of the TPA’s scope of operations, you can determine if your TPA falls under a specific state’s definition of a TPA.

© Self-Insurers’ Publishing Corp. All rights reserved.

As a back-up to reviewing the state TPA definitions, you can send an email to the state insurance department that sets forth a detailed description of the TPA’s scope of operations. Most insurance departments will respond to such an email advising whether or not the TPA should be licensed based on the scope of operations. This is a good confirmation of your interpretation of a state’s definition of a TPA and it provides you with something in writing from the insurance department. By completing this first step, you may be able to decrease the number of states in which the TPA will need to apply for a license.

Once you have determined where the TPA needs to be licensed, the next step is to determine which states have adopted the National Association of Insurance Commissioners (NAIC) Model Uniform TPA License Application. If the states you are targeting for licensure are among those that have adopted the NAIC Model TPA License Application, you can significantly streamline the application process.

First, obtain a TPA license from an NAIC Uniform State on a “home state basis”. Then all that is required to apply for a TPA license in the other NAIC Uniform States is a completed NAIC Uniform Application, the applicable fee and a letter of certification from the state where the

license is held on a “home state basis”.

A TPA does not need to be domiciled in one of the NAIC Uniform States in order to obtain a TPA license on a home state basis. A TPA license on a home state basis can be obtained by submitting what is required for a resident TPA license in one of the NAIC Uniform States.

The Application and Supporting Documents The following steps can be taken to save time down the road when applying for a TPA license in other states that have not adopted the NAIC Model Uniform TPA License Application: • Have a Plan of Operation – Most states will require that a Plan of Operation accompany the TPA license application. The more detailed the Plan of Operation, the less likely it will need to be expanded and/or revised for other states. To make sure that the Plan of Operation will be acceptable for most states, it should include the following: - Mission statement - Company history - Types of services provided to clients - Marketing Opportunities - Competitive advantages - Description of TPA’s staff and their competency - Strategic marketing plan - Companies that utilize the TPA’s services - Jurisdictions in which the TPA is currently licensed (if any) • Review Administrative Services Agreement – Several jurisdictions require a copy of an executed or sample administrative services agreement accompany the TPA license application. Most of these states have laws or regulations that prescribe the provisions that

Do you aspire to be a published author? Do you have any stories or opinions on the self-insurance and alternative risk transfer industry that you would like to share with your peers?

We would like to invite you to share your insight and submit an article to The Self-Insurer!

SIIA’s official magazine is distributed in a digital and print format to reach over 10,000 readers around the world. The Self-Insurer has been delivering information to the self-insurance/alternative risk transfer community since 1984 to self-funded employers, TPAs, MGUs, reinsurers, stop-loss carriers, PBMs and other service providers.

Articles or guideline inquiries can be submitted to Editor Gretchen Grote at ggrote@sipconline.net.

The Self-Insurer also has advertising opportunities available. Please contact Shane Byars at sbyars@sipconline.net for advertising information.

April 2015 | The Self-Insurer

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must be included in the administrative services agreement insofar as they apply to the scope of the TPA’s operations.

Two states that have strenuous licensing requirements are Indiana and Nevada. It is a good idea to review one and/or both of these state’s insurance department websites and download the checklist applicable to administrative services agreements. Once your administrative services agreement complies with the requirements for either Indiana or Nevada, it should comply with the requirements for most other jurisdictions.

• Audited Financial Statements – Several states require audited financial statements for two prior years. The only exception that will be made pursuant to this requirement is for a start-up TPA that has not been in existence long enough to have an income statement. A start-up TPA can use a current balance sheet with an officer’s attestation in lieu of audited financial statements.

If the TPA is a subsidiary of a parent company, the audited financial statement of the parent company is acceptable only if it provides a separate breakout for the subsidiary TPA. Our experience is that the states will not bend when it comes to the requirement for an audited financial statement.

If the TPA is not a start-up company and it does not have audited financial statements, only a limited number of states will grant a TPA license.

requirements. Having a good understanding of the TPA’s scope of operations and how many people will be serviced within a state helps in the first step of knowing how state laws may apply to your operation. ■ Scott Sheffer has been in the insurance industry for 33 years and employed as an Associate Consultant with First Consulting & Administration, Inc. for 16 years. Established in 1969, First Consulting is a leader in the industry in researching TPA licensing requirements and assisting TPAs in obtaining licenses.

Scott’s areas of expertise are TPA licensing, insurer licensing, policy drafting for life and health insurance, producer education and advanced sales. Scott can be contacted at 816-391-2742 or scott.sheffer@firstconsulting.com

Summary

© Self-Insurers’ Publishing Corp. All rights reserved.

The licensing requirements for TPAs vary by state. Although the NAIC Model has been adopted in many states, individual states still have their own

April 2015 | The Self-Insurer

39

SIIA Endeavors Understanding Taft-Hartley Health Workers’ Compensation in The Big Plans Easy

J

oin us at The Windsor Court Hotel May 12-13th for SIIA’s Annual Self-Insured Workers’ Compensation Executive Forum.

This is the country’s premier association sponsored conference dedicated exclusively to self-insured Workers’ Compensation. In addition to a solid educational program focusing on such topics as excess insurance and risk management strategies, this event will offer several networking opportunities that are specifically designed to help you strengthen your business relationships within the self-insured/ alternative risk transfer industry.

Consider the implications to your organization of possible changes in access to care, consolidation of providers and facilities and the use of accountable care organizations.

All this is rapidly becoming a reality under the changes to our healthcare system brought on by the Affordable Care Act (ACA). How will this impact your business? What steps can you take to ensure your injured workers have access to the best care? What issues are on the horizon? Kimberly George, Senior Vice President, Senior Healthcare Advisor at Sedgwick kicks off the conference by discussing these issues in “The Evolving Healthcare Model: The Impact of ACA on 40

The Self-Insurer | www.sipconline.net

Workers’ Compensation and Beyond.”

Leading Self-Insured Groups are embracing “BIG DATA” trends. Initiatives are underway to focus the power of machine learning on the claims and underwriting operations of SIGs. Freda Bacon, Fund Administrator for the Alabama Self Insured Workers’ Compensation Fund, Steven J. Link, Executive Vice President of Midwest Employers Casualty Company, Stan Smith, Predictive Analytics Consultant for Milliman, Inc. and Stu Thompson, Fund Manager of The Builders Group will teach you how advanced analytics and predictive modeling are helping SIGs improve loss ratios, enhance dividends and improve their market position in the session “Looking Into the Future to Control Your Workers’ Comp Costs.”

In the “Workers’ Comp Excess Carrier Discussion” session Scott Keller, Senior Vice President of Arch Insurance Company, Stuart Presson, Vice President of Marketing of US Specialty Underwriters and Seth Smith, Senior Vice President Workers’ Compensation Underwriting at Safety National will discuss market conditions and what workers’ compensation self-insurers should expect in the year head with regard to policy pricing and availability.

Be sure to join us for the keynote address at 8:30am on

Wednesday, May 13th. Dave Mitchell, Founder/President of the Leadership Difference, Inc. will give his “The Power of Understanding People” presentation, providing an entertaining and enlightening way to enhance communication, influence and leadership. Companies including Allstate Insurance, Novartis, Bank of America and Hilton Worldwide have used this course to improve the performance of their people, enhance communication and increase leadership effectiveness. You will not want to miss Dave Mitchell as he mixes applied cognitive psychology, practical examples and laugh out loud humor in this entertaining and enlightening experience.

More than 40 States have either passed legislation for some form of medical marijuana or have bills pending consideration. Like it or not, medical marijuana is here and as an industry we need to be ready.

In the session “Take the high road.

Medical marijuana is here. Are you ready?” Kevin Confetti, Director of Workers’ Compensation Program at the University of California, Albert B. Randall, Jr., Esq. of Franklin & Prokopik, P.C., Mark Pew, Senior Vice President of Prium and Mark Walls, Vice President Communications and

Strategic Analysis for Safety National will discuss the impact of medical marijuana on human resource policies and procedures, risk management practices and claims handling. In addition, the presentation will provide an update on the present approach of our Federal Government as well as other case decisions regarding marijuana utilization. Please join us for this informative session on the current status of medical marijuana and the strategies from a legal, human resource and claims perspective.

Significant understanding of the behavioral neuroscience of pain have developed over the past 20 years and have evolved into dynamic evaluation and treatment models that work successfully in the workers’ compensation system. These models show positive results not only in advanced claims with chronic pain and opioid dependence/addiction but in early proactive claims intervention to create pathways to better outcomes. Michael Coupland, CPsych, RPsych, CRC, CEO, Network Medical Director for Integrated Medical Case Solutions (IMCS Group) and Becky Curtis, Pain Management Coach and Founder, Take Courage Coaching will discuss this in “Behavioral Medicine and Coaching Interventions in Chronic Pain.”

© Self-Insurers’ Publishing Corp. All rights reserved.

Jim Donelon, Commissioner of Louisiana Department of Insurance will share his perspective on how workers’ compensation self-insurers (including SIGs) are viewed and how best to maintain a positive relationships with those responsible for regulating them in “Self-Insurance and Self Insured Groups: A Regulators Point of View.”

What are the biggest workers compensation issues to watch in 2015 and beyond? “Workers’ Compensation Issues to Watch” will be an interactive session, bringing several of our speakers back to the stage for this fast-paced discussion on what issues have their attention and why. Audience members will also have the opportunity to ask the speakers questions about emerging issues they are concerned about. You don’t want to miss this engaging and informative hour!

are group captives. With minimum casualty premiums of only $150,000 for Work Comp, General Liability and Auto, group captives are having record growth that is impacting both SIG’s and traditional carriers. In the final session “You Say SIG, I Say Captive: A Panel Discussion of a Self-Insured Work Comp Group Defending Its Turf Against a Group Captive” Freda Bacon, Fund Administrator for the Alabama Self Insured Workers’ Compensation Fund and Duke Niedringhaus, Senior Vice President of J.W. Terrill, Inc. will discuss this surge in captive premiums and how SIG’s can articulate their difference to compete against this formidable competitor. ■ For more information, including registration forms, hotel information and sponsorship opportunities, please visit www.siia.org or call 800-851-7789.

We look forward to seeing you in New Orleans!

Although Self Insured Work Comp Groups (SIG’s) have plenty of competition from traditional carriers, the real competition for larger “best in class” accounts April 2015 | The Self-Insurer

41

SIIA would like to recognize our leadership and welcome new members

Regular Members

Full SIIA Committee listings can be found at www.siia.org

Company Name/ Voting Representative

2015 Board of Directors

Richard Williams, Principal Advanced Plan for Health Irving, TX

CHAIRMAN OF THE BOARD* Donald K. Drelich Chairman & CEO D.W. Van Dyke & Co. Wilton, CT CHAIRMAN ELECT* Steven J. Link Executive Vice President Midwest Employers Casualty Co. Chesterfield, MO PRESIDENT* Mike Ferguson SIIA Simpsonville, SC TREASURER & CORPORATE SECRETARY* Ronald K. Dewsnup President & General Manager Allegiance Benefit Plan Management, Inc. Missoula, MT

Directors Andrew Cavenagh President Pareto Captive Services, LLC Philadelphia, PA Robert A. Clemente CEO Specialty Care Management, LLC Bridgewater, NJ Duke Niedringhaus Vice President J.W. Terrill, Inc. Chesterfield, MO

Jay Ritchie Senior Vice President HCC Life Insurance Company Kennesaw, GA Adam Russo Chief Executive Officer The Phia Group, LLC Braintree, MA

Committee Chairs ART COMMITTEE Jeffrey K. Simpson Attorney Gordon, Fournaris & Mammarella, PA Wilmington, DE GOVERNMENT RELATIONS COMMITTEE Jerry Castelloe Castelloe Partners, LLC Charlotte, NC HEALTH CARE COMMITTEE Robert J. Melillo 2nd VP & Head of Stop Loss Guardian Life Insurance Company Meriden, CT INTERNATIONAL COMMITTEE Robert Repke President Global Medical Conexions, Inc. Novato, CA WORKERS’ COMP COMMITTEE Stu Thompson Fund Manager The Builders Group Eagan, MN *Also serves as Director

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SIIA New Members

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Jerry Castelloe Castelloe Partners LLC Charlotte, NC Anna Mathy Staffing Service Leader - Client Exec.

Dell-Healthcare Staffing Services Plano, TX Charles Osborne, President Excess Risk Solutions Inc. Lutz, FL Virginia Johnson VP of Business Development Franco Signor LLC Brandenton, FL Patrick Sanders, President Insurance Management Services Amarillo, TX Shellie Schoening Chief Administrative Officer National Pharmaceutical Services Boys Town, NE David Rennie VP Business Development Penfield Care Management Inc. Mississauga, Ontario Brittani Summers Chief Compliance Officer Precision Toxicology San Diego, CA William Kropkof Managing Member The ERISA Advisory Group Henderson, NV

Silver Members Dan West AVP of Product Marketing MedeAnalytics Emeryville, CA Lisa Schneider, Principal Underwriting Management Experts Lansdale, PA

Affiliate Member Scott Buchanan, Vice President QBE Reinsurance Duxbury, MA

What is it?

I N N O V A T I O N

T R A N S F O R M E D

Pay-Plus is it. ®

P A Y - P L U S

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I S

is

I N N O V A T I O N

T R A N S F O R M E D

P A Y - P L U S © Self-Insurers’ Publishing Corp. All rights reserved.

e P A Y M E N T

I S

e P A Y M E N T

For more information, visit us at PPSonline.com ©2014 Pay-Plus® Solutions, Inc. All Rights Reserved. CAQH CORE®, the CORE-certification/Endorser Seals and logo are registered trademarks of CAQH® Copyright 2010, Council For Affordable Quality Healthcare®. All rights reserved.

CAQH CORE®, the CORE-certification/Endorser Seals and logo are registered trademarks of CAQH® Copyright 2010-2014, Council For Affordable Quality Healthcare®. All rights reserved.

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PRODUCT PERFORMANCE PARTNERSHIP

At PHX, we offer a comprehensive solution that is tailored to fit your business – take advantage of our comprehensive suite of cost-management Products, enjoy the benefits of outstanding Performance, and together we will build a long-term Partnership.

Contact us at (888) 311.3505 to find out how PHX can add value to your business, or visit us online Copyright 2014 Premier Healthcare Exchange, Inc. All Rights Reserved.

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